(Adds details, updates market activity) By Frank Tang NEW YORK, July 9 (Reuters) - Gold rose in quiet trade onMonday after the previous session's sharp drop, lifted by highercommodity prices and benign inflation data from China. Fears of rising commodity prices because of a record high inU.S. soybean futures and corn's rally amid severe dry conditionsin the U.S. Midwest boosted the metal's inflation-hedge appeal.Surging crude oil prices and a weaker dollar also boosted gold. Also underpinning bullion was Chinese data showing theinflation rate undershot expectations in June, signaling moreroom by China's central bank to ease monetary policy to staveoff a slowdown. Traders said option trading suggested the gold price couldrebound after its recent weakness due to deflation fears amid astring of disappointing economic data. The metal has lost 2percent in the previous two sessions. "There is option activity here and volatility is beingbought over. There is a big put buyer buying futures and August$1,550 puts, and that usually pertains a move up," said JonathanJossen, COMEX gold options floor trader. Spot gold climbed 0.5 percent at $1,590.50 an ounceby 2:23 p.m. EDT (1823 GMT). U.S. COMEX gold futures for August delivery settledup $10.20 at $1,589.10, with volume at about 40 percent belowits 30-day average, preliminary Reuters data showed. Silver rose 1.3 percent to $27.41 an ounce. Gold dropped 1.5 percent on Friday after weak U.S. jobs datafailed to raise hopes that the Federal Reserve will embark on athird round of asset-buying program. San Francisco Federal Reserve Bank President John Williamssaid on Monday the U.S. central bank is prepared to do more tobring down unemployment that is far too high and to steerinflation back up to the Fed's 2 percent target. Economists polled by Reuters now attach a 70 percent chanceto the Fed's embarking on another round of government-bondsbuying to lower borrowing costs. That estimate has increasedfrom around 50 percent in late June.